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Award of Sanctions/Punitive Damages Common in Bankruptcy Adversary Proceeding?

San Francisco, CA |

If a Creditor prevails in an adversary proceeding against a Debtor for fraudulent filing for Bankruptcy, what are the chances of the Creditor being awarded santions/punitive damages to cover such items as attorney's fees, personal time spent on the case, etc And, how would this amount be determined? Would it be based on actual attorney costs, or is there a set formula that is used to determine punitive damages?

Attorney Answers 3

  1. The person suing would have to ask for these costs and fees in the original suit and the Judge would have to grant them. After grating the right to get the costs and fees the persson has to bring a motion to have them approved by the bankruptcy court. The court usually wants to see contemporaneous billing and actual costs, but can award a flat fee. It depends on the court. See an attorney for your local practice.

    Disclaimer: This answer does not constitute legal advice. I am admitted in the States of New York, New Jersey and Massachusetts only and make no attempt to opine on matters of law that are not relevant to those three States. This advice is based on general principles of law that may or may not relate to your specific situation. Facts and laws change and these possible changes will affect the advice provided here. Consult an attorney in your locale before you act on any of this advice. You should not rely on this advice alone and nothing in these communications creates an attorney client relationship.

  2. In most adversary actions I have seen, the parties are able to reach an agreement to resolve the matter before going to trial. Under that circumstance, sanctions & punitive damages are not awarded. Sometimes it is better to get half a loaf than to get nothing.

    Hope this perspective helps!

  3. You mention that the basis of the adversary proceeding is "fraudulent filing for bankruptcy". You don't mention the specifics of what acts were done to constitute fraud. If the fraud consisted of lies to the court about the debtor or debtor's business, etc. you would have a remedy in Bankruptcy Rule 9011. This rule states, in essence, that if someone (a party, attorney, or otherwise) signs a document for filing with the court, that signature is a statement that they have investigated both the facts and law stated in the pleading and they are accurate statements. Rule 11 is extremely complicated and I wouldn't do it without an attorney, but you don't have to put such a claim into the beginning pleadings of the adversary proceeding, The signing person can be fined at the request of the person bringing the Rule 9011 motion or by the judge on their own authority. The fine is like punitive damages. If the fraud is really outrageous, the trustee or the office of the U.S. Trustee might be invovled.

    Lysbeth Goodman is an attorney licensed in the state and federal courts of California. This answer is for general information only and does not create an attorney client relationship between Lysbeth Goodman and any other person. You should schedule a consultation with an attorney to discuss the specifics of your legal issues.